Singaporean SMEs (small- and medium-sized enterprises) are actively expanding outside of the city state these days. The island’s small domestic market and the impact of the COVID-19 pandemic on business growth plans are push factors for Singapore SMEs to seek international growth. Collaborating across borders is also easier with more people embracing remote working and digitalisation.

According to a UOB survey of 800 business owners and key executives of SMEs with less than S$100 million in revenue, Singapore’s small businesses are keen to seek revenue growth beyond the island’s shores – boosting profits and international reputation are key motivators.

Figure 1: Reasons why Singapore SMEs want to expand overseas. Source: UOB SME Outlook Study 2022

The UOB SME Outlook Study 2022¹ found that three in five SMEs in Singapore intend to venture into ASEAN within the next three years. Malaysia (54 per cent), Indonesia (48 per cent) and Thailand (46 per cent) are the top three popular regional investment destinations.

This is not surprising as most ASEAN economies are recovering towards pre-COVID levels of output and beyond. Despite the economic uncertainties, intra-ASEAN investments remained at a high level at US$21 billion in 2021.

Figure 2: Intra-ASEAN investment flows and shares. Source: UNCTAD

In fact, ASEAN has resumed its position as a growth engine for foreign investments in Asia and globally with foreign direct investment (FDI) inflows up 35 per cent in 2021.

The region’s strategic location, rapid urbanisation and fast-growing middle class consumer base attract investors. We can see that when respondents cite consumer goods as the top sector (82 per cent) for overseas expansion.

Intra-regional investment is expected to rise with the Regional Comprehensive Economic Partnership (RCEP). RCEP, one of ASEAN’s free trade agreements, will play an important role in boosting intra-regional investment, integrating further into global supply chains.

Through RCEP, Singapore SMEs can enjoy zero tariffs for more than 90 per cent of goods over the next 10 to 15 years. Non-tariff barriers will also be reduced through a common Rules of Origin, with the harmonisation of requirements standards for businesses to enjoy preferential terms.

Localisation essential for expansion

However, expanding overseas is no easy task. Business expansion is a major decision that requires time and strategic planning. It may also affect the company’s current processes. Two in five SMEs surveyed highlighted that they lack knowledge of new markets and face difficulties in finding the right partners overseas.

Talent fit for the region is critical. To succeed in ASEAN, companies will need to attract and groom talents that are able to adapt to local customs and business practices. This is especially important as ASEAN has a diverse ethnic, cultural and linguistic population.

For example, the 10 countries that make up the region have their separate, unique official languages. In addition, a single member country like Indonesia has about 700 living languages and sub-dialects which may be mutually unintelligible.

This is where regional government agencies and professional service providers such as UOB provide ample support to assist SMEs with their regional expansion strategies. One in two SMEs surveyed are keen to collaborate with industry bodies, government agencies and large businesses – signalling a willingness to seek external help.

Figure 3: Top challenges that SMEs perceive they will face when expanding overseas. Source: UOB SME Outlook 2022

SMEs are not alone in their regionalisation journey. For example, Enterprise Singapore has a Market Readiness Assistance grant that provides SMEs with financial assistance when expanding their products and services to overseas markets. Applicants must be a company incorporated in Singapore with 30 per cent local shareholding and a group annual sales turnover of not more than S$100 million, or with not more than 200 employees.

To facilitate the grants application process, the Singapore Government has also launched the Business Grants Portal to help businesses apply for various grants under a single portal.

GlobalConnect@SBF was set up by the Singapore Business Federation, in partnership with Enterprise Singapore, to support companies with their expansion plans.

UOB organised a business matching webinar titled 'ASEAN Investment Series: Grow your brand with Vietnam's affluent consumers' to help Singapore companies gain a foothold in Vietnam's consumer sector. Photo: UOB

UOB is a strategic partner of SBF in the GlobalConnect@SBF initiative and works with SBF through its Foreign Direct Investment Advisory Unit's network of 10 FDI centres, to connect Singapore SMEs to distributors in Indonesia, Thailand, Vietnam and more.

Our strong Asian heritage, strategic regional franchise in Greater China and ASEAN, and commitment to facilitating cross-border trade and commerce enable us to help Singapore companies tap into exciting regional growth opportunities.

¹The UOB SME Outlook Study 2022 was a survey conducted from late December 2021 to early January 2022, among 800 local SMEs with revenue of less than S$100 million. The study aimed to understand the business outlook and key expectations among SMEs in Singapore.

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